With Union Budget 2026 around the corner, attention has returned to the Capital Gains Account Scheme (CGAS), as taxpayers and tax professionals raise concerns over operational bottlenecks that continue to erode the scheme's effectiveness as a capital gains tax relief mechanism.
Launched in 1988, CGAS allows taxpayers to park long-term capital gains temporarily when reinvestment in eligible assets cannot be completed within prescribed timelines. Although the scheme has undergone amendments in 2012 and more recently in November 2025, experts argue that fundamental structural gaps remain unaddressed.
Partial Digitisation, Persistent Friction
The Second Amendment to the CGAS Rules, notified on November 19, 2025, introduced several long-awaited reforms. These included permitting electronic deposits, enabling online closure of CGAS accounts, and widening the list of authorised bank branches.
While these measures have reduced procedural delays, practitioners say the reforms stop short of solving the scheme's core challenge, the lack of system-level integration between CGAS banks and the Income tax Department.
Manual Disclosures Continue to Burden Taxpayers
Currently, CGAS accounts can be opened only with select notified banks and taxpayers must independently maintain records of all deposits and withdrawals. This information does not automatically reflect on the income-tax e-filing portal, forcing taxpayers to manually disclose every CGAS transaction while filing their returns.
The absence of auto-validation often results in year-to-year mismatches, triggering tax notices and avoidable scrutiny, particularly in cases where capital gains are utilised in phases.
A tax professional observed that although CGAS remains conceptually relevant, its design no longer aligns with India's digitised tax infrastructure. "The scheme still relies on manual reporting. Taxpayers are exposed to compliance risk even when they have genuinely followed the law. This defeats the purpose of a facilitative tax exemption mechanism," she said.
Disconnect With AIS and TIS Raises Red Flags
Experts point out that CGAS data is not currently integrated with the Annual Information Statement (AIS) or the Taxpayer Information Summary (TIS). As a result, there is no consolidated view of deposits, withdrawals or utilisation of capital gains funds across financial years.
Taxpayers filing ITR-2 or ITR-3 must manually classify CGAS transactions, increasing the possibility of reporting errors that may jeopardise otherwise valid exemption claims under capital gains provisions.
Limited Banking Access Still a Concern
Although private sector banks have been gradually included under the CGAS framework, coverage remains uneven across regions. This can cause delays at critical moments when taxpayers are required to deposit capital gains before statutory deadlines to preserve exemption eligibility.
Budget 2026: Industry Seeks a Structural Reset
While the November 2025 amendments eased several procedural constraints, experts believe true reform requires end-to-end digital integration. Automated data exchange between banks and the tax department, they argue, would allow pre-filled CGAS fields in ITRs, real-time validation and smoother assessments.
As Budget 2026 approaches, stakeholders hope the government will move beyond incremental changes and undertake a comprehensive digital overhaul of CGAS, aligning it with the broader push towards technology-driven, low-friction tax compliance.
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